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Risk, Entitlements and Fairness Bias: Explaining Preferences for Redistribution in Multi-person Setting

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  • Mitesh Kataria

    ()
    (Max Planck Institute of Economics, Strategic Interaction Group, Jena)

  • Natalia Montinari

    ()
    (Max Planck Institute of Economics, Strategic Interaction Group, Jena)

Abstract

Researchers frequently studied the casual relationships of other-regarding preferences by applying experimental methods in bilateral settings (e.g., dictator game and ultimatum game). We use a framed experiment on taxes to study preferences for redistribution in a multi-person setting. We find presence of heterogeneous preferences with a substantial share of tax rate choices in line with both payoff maximization and other-regarding preferences. Notably, our data is not consistent with inequality aversion but points to other forms of other-regarding preferences, as fairness and altruism. By manipulating how subjects are assigned to a given level of pre-tax income, we vary the individual entitlements. We find a difference in the willingness to redistribute income when comparing the treatment where pre-tax income is assigned by relative performance in a production task (a general knowledge quiz) to the treatment where pre-tax income is assigned by luck. We do not find any significant difference in comparison to the intermediate treatment where pre-tax income is assigned by a combination of luck and performance. The perception of a "fair" tax is different depending on whether subjects' pre-tax income is below or above average, which is in line with a fairness bias. Finally, subjects not knowing whether their pre-tax income is below or above the average when choosing the tax rate behave as if they were more other-regarding.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2012-061.

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Date of creation: 12 Nov 2012
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Handle: RePEc:jrp:jrpwrp:2012-061

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Keywords: Redistribution; Entitlements; Fairness Bias; Risk; Framed Tax Experiment;

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  1. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 817-869, August.
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